Unsecured Loans Grew Four Times Faster than Overall Growth in Bank Credit between FY15 and FY18

As per a report published by analysts at Crisil Research, outstanding unsecured loans stood around Rs.5 lakh crore at the end of March this year.

As per a report published by analysts at Crisil Research, outstanding unsecured loans stood around Rs.5 lakh crore at the end of March this year. It constituted 26 percent of all retail loans that banks and financial institutions had to offer. The jump in the percentage as compared to the end of FY15 was a whopping 21 percent. It needs to be mentioned here that if the small and medium enterprise (SME) loans are excluded from the calculation, unsecured loans accounted to 32 percent which is an all-time high, as per Jefferies, an investment bank.

Crisil Research, a global analytical company that provides ratings, research and risk and policy advisory services in its report stated that compared to overall growth in bank credit, unsecured loans in the banking system grew at the rate of four times in the last three years. The published report also highlighted that unsecured credit which comprises of SME loans and credit card loans clocked 27 percent CAGR i.e., Compound Annual Growth Rate (CAGR).

If P.K.Gupta, the managing director of retail and digital banking, State Bank of India (SBI) is to be believed the growth is due to private lenders like IndusInd Bank and Kotak Mahindra Bank and the fact that the loans are being provided on the back of the comfort provided by data from credit bureaus. He added that data released by credit bureaus are helping lenders identify the ideal customers, before providing them unsecured loans. Gupta highlighted the fact that the yields from unsecured retail loans which could range from 1.5 percent to 4 percent are higher than secured loans.

While Kotak Mahindra Bank and IndusInd bank had been contributing significantly to the percentage growth of unsecured loans, SBI had seen low levels of delinquency in this portfolio, as per Gupta. This was because the bank had tapped into its existing base of deposit holders for business.

It is worth mentioning here that Paresh Sukthankar, the deputy managing director of HDFC bank had earlier in the year stated that the competitive intensity in most retail products was increasing. He put it down to the fact that many banks in the country were looking to grow their retail books more than in the past. At that time, Sukthankar was quoted as saying, “So, it’s been competitive both from a rate perspective, from a payout perspective.”

Jefferies highlighted that irrespective of the growth, lenders in the country were still able to maintain its grip on asset quality. As of March 2018, the one year lagged gross non-performing asset (GNPA) ratio was around 3 percent in unsecured personal loans.

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